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Individual performance incentive programs can generate outstanding results. But at some point, the Tragedy of the Commons, if it is not carefully watched, can erode that success, breeding conflict in an organization, conflict that harms morale and reverses the early positive results.
The Sales Contest
In Glengarry Glen Ross, a group of four real estate salesmen are locked in a competition to close deals so they can keep their jobs and gain access to the coveted Glengarry sales leads. Of the four, only two will still be part of the sales team. In the movie, two of the characters decide to steal the Glengarry leads and sell them to a rival company.
The story illustrates an interesting dynamic. The sales team depends on leads, the people who filled out cards at some trade show saying they were interested in buying real estate. There is a finite supply of leads, and many of the leads are worn out from overexposure to sales calls.
In a typical sales contest, potential customers are the controlling resource of the system. Usually, sales management treats the market as a bottomless well of potential customers, when in reality there is a limit to the number of qualified customers. The more specialized the product or service, or the higher the price, the more limited the pool of customers. In some sales organizations, the salespeople earn on a simple commission program, so the funds they need to find leads and develop customers into buyers come from a portion of the commission the salesperson earns.
If Salesman A closes more deals than Salesman B, Salesman A earns more commission than Salesman B. If the salesmen in this system pay for their own lead generation and development, or are given more leads from a central pool based on deals closed, the salesmen with higher performance receive more resources. If the pool of leads is limited, at some point, the low-performing salesmen starve for new leads. If the low performers are unable to convert leads into closed deals, the low performers starve.
At some point, overall sales production starts to fall. The strongest salesman controls more leads than he can manage, and the rest of the sales team suffer decreases because they have worn out their smaller supply of leads. The system becomes damaged. In the movie, two salespeople steal the leads, an unintended consequence that damages the total effort of the company.
Two or more individuals use a common but limited resource based on their effectiveness at converting the resource into production. When the more effective individuals are rewarded for their greater efficiency with more access to the resource, eventually the entire system sees diminishing returns because the strongest individual cannot use all the resources he has, and the rest of the group has insufficient resources to sustain production.
What the People Say
“There used to be plenty of work to go around, but not so much now,” is a phrase often heard in operations that use individual incentives to reward salespeople. Terms like Darwinian, Survival of the Fittest, Only the Strong Survive, or Starving for Work are associated with the Tragedy of the Commons Archetype.
What to Do?
While it is not uncommon to see competition for food and shelter in nature, the notion of Survival of the Fittest is offset by adaptability in nature, as animals adjust for the short term, evolving over the longer term of generations. In the man-made systems of business, leaders must be careful not to tie resource access to performance.